Cross Your Fingers

The government is about to pull the plug on Fannie Mae and Freddie Mac.

The Fed has been purchasing their mortgage back securities and keeping interest rates in the area of 5%. Remember, Fannie and Freddie underwrite about 75% of all U.S. mortgages. The federal government has spent billions and billions of dollars with mortgage purchases in the current recession.

If the government stops buying mortgages, leaving those purchases to the private market place, mortgage rates will certainly rise. In addition, FHA loans will become more difficult for a buyer to qualify for.

FHA is also increasing the cost of its mortgage insurance programs. There is even talk of increasing FHA down payments and restricting closing costs that currently sellers are allowed to pay for the buyers.

Take all of these things, plus stop the Tax Credit currently allowed for buyers, and do it all in the 2nd quarter of this year, you could have a real housing downturn.

Keep your fingers crossed, and hope the housing market will not crash again in the 3rd quarter of this year.